These venture capitalists skip law firms for legal services startups

Venture capitalist Jason Mendelson, in a speech he gave last year, was not venturing much oral capital into the concept of investing in legal services.

A corporate and securities-law attorney before he co-founded the Foundry Group, his venture capital firm, Mendelson told a conference he found it difficult to invest in companies serving law firms because, unlike regular enterprise customers, they don’t always act rationally when it comes to economics. He warned that most legal startups would fail due to the industry’s complications and barriers.

Next up to speak was Colin Rule, the founder and chief operating officer at Modria, which bills itself online as “the world’s leading online dispute resolution experts.” And things changed.

Mendelson says he was so impressed by Rule and by Modria’s emphasis in targeting an area of the law that wasn’t regulated by the ABA Model Rules of Professional Conduct or serviced by traditional law firms that he immediately agreed to a meeting and made an investment shortly afterward.

“We made a love connection at that conference,” Mendelson says.

Rule is just as starry-eyed.

“We’ve spent a lot of time talking to VCs, and a lot of the time they don’t understand the law profession,” Rule says. “That’s a big challenge. Occasionally around the table at a VC meeting there’s a lawyer, and when you talk about the challenges the legal profession is facing, they get it. Jason got it.”